Investment Glossary

As Used Within This Site

401(K) A 401(k) plan allows a US worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wage paid directly, or "deferred," into his or her 401(k) account. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. For more information see Wikipedia.
403(b) A 403(b) plan is a tax-advantaged retirement savings plan available for public educational institution or hospital, some non-profit employers (US Tax Code 501(c)(3) organizations), and self-employed ministers in the United States. It has tax treatment similar to a 401(k) plan. Employee salary contributions to a 403(b) plan are made before income tax is paid and allowed to grow tax deferred until the money is taxed as income when withdrawn from the plan. For more information see Wikipedia.
A 457(b) plan is a type of tax-advantaged defined contribution retirement plan that is available for individual employees of a State and certain non-governmental employees performing services for the State. The employer provides the plan and the employee defers compensation into it on a pre-tax basis. There are two primary types of the plans, governmental and non-governmental. Some governmental plans were under 457(g) but those plans may no longer be created. Most governmental and non-governmental plans are 457(b) plans. For more information see Wikipedia.
$CASH We use the generic symbol $CASH in Buy/Sell when StormGuard wants you to move to/from the safety of a money market fund. Not everyone has access to the same money market fund so we use $CASH to mean pretty much any money market fund you have available to you.
Account Position An account position is term used to reference a specific investment (such as a stock or mutual fund)within an account and sub-account. Within your retirement portfolio you may have IRA, 401K, and individual taxable accounts, each having taken a specific investment position in a stock or mutual fund.  Furthermore, you might additionally break down your IRA account into multiple sub-accounts thereby resulting in multiple positions just your IRA, each of which must be managed by some Strategy.
Active Strategy A Strategy is defined as being Active if it is in the upper group of Strategies on the My Strategies page. An Active Strategy will send Trade Alerts when the Strategy determines that one fund should be sold in favor of another. Subscription fees may apply to an Active Strategy depending on whether it is a FREE or Premium Strategy. Any Strategy in the lower portion (sandbox) of your My Strategies page is considered an evaluation Strategy which has no subscription fee, but will not include the most recent trade signal, current trend charts, and does not trigger any Trade Alerts to be sent.
Algorithm An algorithm is a method for solving a problem or completing a task using a specific sequence of instructions, the computation of which proceeds through the series of well-defined steps to arrive at a result. Investment analysis indicators commonly used to evaluate the suitability of a stock or fund, such as RSI, MACD, Moving Averages, and the like, are generated from algorithms.
Asset Class Indicator An asset class indicator might best be thought of as a market direction indicator that is used to better control the transition between the higher volatility stock fund asset class and the very lower volatility money market fund asset class when the overall market starts to falter. SectorSurfer's StormGuard feature uses an asset class indicator for the purpose of asset class rotation.  Stocks, bonds, or cash? See also the StormGuard Indicator section of the Using SectorSurfer page for more information. 
Asset Class Rotation The broadest asset classes for investment include Stocks, bonds, and cash (money market). Certainly you can also include annuities, commodities, currencies, derivatives, real estate, and others. Within the context of SectorSurfer, a Strategy is typically composed of 4 to 12 stocks, ETFs, or mutual funds. SectorSurfer additionally uses its StormGuard algorithms to determine when a market storm is brewing and it is no longer safe to be in stocks (which includes most mutual funds and ETFs), and directs you to move to the safety of the cash asset class (money market funds, treasuries, etc)   
Backstop Funds When building a SectorSurfer Strategy, one of the important performance principles is that of handing off from one fund to another as described here graphically regarding sector rotation and asset class rotation. When assembling a set of sectors or asset classes, it is often good to include a fund like MDY (S&P Midcap) as a backstop such that if there comes a time when none of the other funds is doing at least as well as the MDY, then MDY becomes the backstop for minimum acceptable performance. Similarly, a long-term treasury fund, such as IEF, TLT, FBLIX, or VUSTX may also be helpful as a backstop in performance when stock equities are seriously weakening.
Bonds Bonds enable the issuer to finance long-term investments with external funds. A bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company. For more information see Wikipedia.
Diversification Diversification reduces risks associated with any one of investment by averaging it in with numerous other investments to. Specifically, the impact of a significant loss in any one investment is compensated for by the gains in other investments. Conversely the impact of significant gains in any one investment is diminished by the losses in other investments. Safety is achieved at the expense of lower returns. Diversification, by its very definition of owning a little bit of everything, is inherently a plan for average performance -- just like your mother always wanted for you... right?  See also Post-Surfing Diversification. See Wikipedia for more information.
ETF An Exchange Trade Fund is a basket of stocks similar to a mutual fund that is traded in the market just like a stock. Shares can be traded at any time the market is open, can be bought long or sold short, and brokerage fees apply. Currently all ETFs must be based on an index representing a particular region, sector, or asset class. Thus they are a passively managed collection of stocks, whereas mutual funds may be actively managed by the fund manager to attempt a higher return. See Wikipedia for more information.
Index A market index is composed of a basket of stocks compiled by news or financial services firms to benchmark the performance of the broad market as a whole, regional markets, or specific sectors of the market. The Dow Jones Industrial 30 Index, for example, is a collection of 30 stocks that together reasonably well indicate the performance of the US stock market as a whole. The performance of mutual funds is often measured against a comparable index, and ETFs are specifically designed to track a specific index, which exist for every major market sector and world region. See Wikipedia for more information.
Indicator An indicator is a mathematical calculation (algorithm) based on the price and/or volume history a security for use in predicting its future prices. Commonly used technical analysis indicators are the moving average convergence-divergence (MACD) indicator and the relative strength index (RSI). SectorSurfer uses proprietary adaptive indicators that automatically optimize calculation parameters for changing market characteristics. The sector having the highest indicator value determines which of the sectors one should be invested in at any given time.
IRA An Individual Retirement Account is a retirement plan account that provides some tax advantages for retirement savings in the United States. There are a number of different types of IRAs, which may be either employer-provided or self-provided plans. The types include:          (information from Wikipedia)
  • Roth IRA - contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. Named for Senator William Roth.
  • Traditional IRA - contributions are often tax-deductible (often simplified as "money is deposited before tax" or "contributions are made with pre-tax assets"), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be referred to as a "deductible IRA" or a "non-deductible IRA."
  • SEP IRA - a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee's name, instead of to a pension fund account in the company's name.
  • SIMPLE IRA - a simplified employee pension plan that allows both employer and employee contributions, similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.
  • Self-Directed IRA - a self-directed IRA that permits the account holder to make investments on behalf of the retirement plan.
Managed A fund is said to be passively managed if it rigorously maintains its investments to match that of a published index. A fund is said to be actively managed if its manager actively changes the relative weighting of its investments in belief that it will cause the fund' to outperform other similar funds and reference indices. Many, but not all, mutual funds are actively managed, while passive management is required of ETFs.
Mutual Fund A mutual fund pools money from many investors that a professional fund manager invests in stocks, bonds, money market instruments, and/or other securities. The fund manager's investment choices are constrained by a strategy specified in the fund's prospectus. Mutual funds are generally only priced at the end of the day and generally have punitive fees to prevent trading them more than a few times per year.  Most, but not all, mutual funds are actively managed. See Wikipedia for more information. 
Money Market A money market fund invests in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. The main goal is the preservation of principal, accompanied by modest dividends. The fund's Net Asset Value remains a constant $1 per share to simplify accounting, but the interest rate does fluctuate. Unlike bank accounts and money market accounts, most deposits are not FDIC insured, but the risk is extremely low. The biggest risk involved in investing in money market funds is the risk that inflation will outpace the funds' returns, thereby eroding the purchasing power of the investor's money.
MPT According to Modern Portfolio Theory, largely developed by Harry M. Markowitz, investors are generally risk averse, and given two assets that offer the same expected return, investors will prefer the less risky one. Thus, an investor takes on increased risk only if compensated by higher returns, and vice versa. The trade-off between risk and reward will differ according to individual risk aversion preferences. MPT also proposes how rational investors can use diversification to optimize their portfolios; that an asset's return is a random variable; and how to model a portfolio as a weighted combination of assets.  The variance (standard deviation) of an asset's return over time is generally defined as its measure of risk. By mixing an asset class having a particular risk-return characteristic with some proportion of zero risk and low-return money market instruments, you can produce any combination of risk and return on a line between the plots of these two assets on a risk / return chart. See Wikipedia for more information.
Portfolio A portfolio is a collection of investments that one holds. The holdings of a portfolio might include assets such as stocks, bonds, cash, real estate, commodities. According to Modern Portfolio Theory (MPT), a portfolio is a part of a risk-limiting strategy called diversification.
Post-Surfing Diversification Post-Surfing Diversification is the act of creating a Portfolio of multiple SectorSurfer Strategies so that the homerun performance of each is achieved and preserved while the secondary act of averaging them together reduces the net impact of their individual uncorrelated short-term bumps to provide a smoother investment ride. The sequence of "surf, then diversify" is the key to optimizing both return and risk performance in a portfolio. Examples of the benefits of Post-Surfing Diversification can be seen in the Portfolio Charts portion of the Advanced Topics page.
Quantitative Analysis A financial analysis technique that seeks to understand and predict the future behavior of a stock or fund by using complex mathematical formulas on its past price and volatility market data. In contrast, fundamental analysis uses revenues, earnings, future growth, return on equity, profit margins and other data to determine a company's underlying value and potential for future growth. The claimed advantage of quantitative analysis over fundamental analysis is that live market data directly incorporates the analysis opinion of "the masses" and their emotional responses. If you conclude that company XYZ is headed for disaster with its new product offerings and financial condition, but the masses think otherwise, one's investment accounts are likely to fair better by investing with the trend set by the masses versus by one's own narrow view of "what should happen." Market price movements and volatility are the direct results of what the masses are thinking and feeling.
Referral-ID Your Referral-ID is the number tacked onto the end of your Referral-URL (used for hyperlinks in emails and web objects to give you referral credit when someone clicks the link and signs up). For example, if the Referral-URL =, then your Referral-ID is 4931. This is just the way that the server recognizes which account holder should receive referral credits. This number is never used separately from the complete Referral-URL and references your account identically in the same way as your Referral-Name references your account when humans make the link/entry.
Referral-Name A nickname, such as 'SurferJoe', that you created on your Account Information page, for use in giving to someone for manually entering into the Referral-Name text box during their Sign Up process so that you will get credit for having referred them as a customer. Your Referral-Name is particularly useful when you are telling a friend about signing up in person, where Referral-URLs aren't particularly helpful. 
A web page hyperlink with your Referral-ID embedded in it so if the referred person clicks the link and then later signs up and becomes a paying subscriber, you will be linked as the referrer and get referral commission. You will see your Referral-URL on our web pages designed for forwarding Strategy charts or sending other invitational emails.
Sandbox Strategy The lower list of Strategies on the My Strategy page are called Sandbox Strategies. This list is your "Strategy Evaluation Playground." No subscription fees are charged for these Strategies, but you will not receive email Trade Alerts or be able to see the most recent trade. This is where you can develop and monitor Strategies without charge until you are fully ready to make use of them
Sector In economics and finance a market sector describes a set of businesses that are in direct competition with one another. The performance of a given company's sales, cost of goods sold, debt, earnings, and other financial measurements are most meaningful when measured in relation to others in the same market sector. Owning a sector fund has the benefit of reducing the volatility and risk associated with individual stocks while still providing upside potential when the sector outperforms the general market. Yahoo's primary market sectors include: Basic Materials, Conglomerates, Consumer Goods, Financial, Healthcare, Industrial Goods, Services, Technology, and Utilities. These then may have sub-sectors.
Sector Rotation Data from the National Bureau of Economic Research going back to 1845 has shown that not all sectors of the economy perform well at the same time and that there is a rotation through various sectors from one economic cycle to the next. A fund manager may then rotate (shift) investment assets from one sector of the economy to another in an attempt to improve the investment return performance.  SectorSurfer practices what we call True Sector Rotation, which i s the act of owning the one, and the only one, trend leader from among a set of up to 12 candidate funds in a Strategy. True Sector Rotation is also referred to as Serial Diversification , where over time one owns many  funds, but just one of them at a time.
Sector Surfing The act of catching and riding the wave of the best performing sector within group of diverse sectors by employing online servers running sophisticated adaptive indicator algorithms to monitor your portfolio daily thus allowing you to enjoy your true life priorities and passions with rare interruptions only when a trade is actually required.
Serial Diversification The act of owning many funds, but only one of them at a time. Serial Diversification is an advanced form of diversification that does not mindlessly require owning of asset classes or sectors just to satisfy the traditional "diversification gods" to reduce risk, but instead selectively avoids risk by owning only the trend leader and avoiding the trend laggards. To execute Serial Diversification requires a trend-following indicator and trading system. Its effectiveness will depend on the quality of the trend signal. 
Statistical Data Statistical analysis computes summary information about a set of data, such as its average, its standard deviation (wiggliness), or its correlation to another set of data. These are important measures for understanding the character of a set of data - such as the performance of a mutual fund. However, in the process of performing the analysis, all time domain information is lost, thus making it impossible to use such statistical data to make anything other than a buy-and-hold investment decision. See Wikipedia for more information.
Strategy A Strategy, in the context of SectorSurfing, is a combination of a set of up to 12  mutual funds or ETFs along with an indicator algorithm to evaluate the performance of the funds to determine which one, and only one, of the (up to) 12 funds is currently demonstrating leadership and should be owned in your account. A Strategy typically has a "themed group of funds," such as market sectors, socially responsible funds, or country funds. You might use multiple Strategies, each one being assigned to manage the money in one of your account positions in your Portfolio. You can browse the performance characteristics of numerous Example Strategies we have assembled by clicking HERE, or you can create your own Custom Strategy using the funds of your choice, or as offered to you in a company administered retirement plan, such as a 401(k).
Stocks / Shares A share of stock means a share of ownership in a corporation. In the plural, stocks is often used as a synonym for shares especially in the United States, but it is less commonly used that way outside of North America.[ Stock typically takes the form of shares of either common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. For more information see Wikipedia.
StormGuard TM SectorSurfer utilizes a special asset class indicator to examine the general direction of the market and help SectorSurfer judge whether to put more or less weight toward stock funds versus bond funds or money market funds. The StormGuard feature is largely responsible for the flat zones in the return charts during generally down years in the overall market. The overall impact is to reduce the probability of loss of real money during these periods with little or no sacrifice in long term performance of the Strategy. See the StormGuard section of the Using SectorSurfer page for more details.
Taxable Your investment accounts are always eventually taxable. However, a taxable account is usually used to refer to an account that does not have any tax deferral status that allows it to grow tax-free such as IRA, 401(k), 403(b) and 457(b) accounts. Taxable accounts are taxed annually according to their investment returns and should only be used for short term investments or when contribution limits are reached for tax-free investments.
Temporal Data Temporal data incorporates the dimension of time. The price chart of a stock has a vertical dimension of price and a horizontal dimension of time. All temporal information is lost in statistical analysis where such things as standard deviation, correlation coefficients, and averages are computed. Temporal data may also include trend indicators and volatility indicators that change over time.